A perfect storm of external forces is pressuring course operators to make tough choices on capital expenditures
The nickname spread like a contagion. By the end of August, most Atlanta residents called their city “Seattle of the South” for wholly appropriate reasons. Georgia recorded its wettest July in record-keeping history in 2013, with measurable precipitation 28 of 31 days. Over that same period, Atlanta experienced almost double its average rainfall for the summer. By Labor Day, many counties had reached their average annual precipitation numbers, and lakes that had been drought-stricken mudholes in years past swelled at their banks.
The ripple effects could be felt across the region. Theme parks and campgrounds had their worst years in decades, especially coming after one of the coldest, longest and wettest winters in years. Those with disposable entertainment dollars scurried into malls, movie theaters and bowling alleys—anything to keep them dry and indoors.
Golf took a hit as well, and not just in the Peach State. The Midwest saw snowfall in May, and the Northeast suffered through freezing temperatures in June. Colorado had deadly floods in early September, and Texas experienced extreme cold followed by stifling heat with little or no transition. It seemed like the only things missing from 2013 were locusts and frog plagues.
Official numbers aren’t available yet, but anecdotal evidence suggests that rounds of golf nationwide will be down between 12 percent and 20 percent from their 10-year averages and off even more from 2012 levels. In almost all cases, the decline can be traced to weather.
“Rounds in 2012 were 12 [percent] to 15 percent above norm, very high,” says Joe Guerra, CEO of Sequoia Golf, which owns 25 courses in Georgia, six in Texas and four in Colorado. “But rounds in 2013 are 12 [percent] to 15 percent below normal. So if you averaged the two years, you’d have a fairly normal 24-month period.”
Weather fluctuations in the golf industry are as ubiquitous as grass, but this year’s brutal conditions are especially painful. As Guerra notes, the problem has been exacerbated by the long, deep economic down period of recent years, which has put pressure on rounds even without bad weather.
Because of this “perfect storm” of unsavory conditions, many already cash-strapped golf course owners will have some tough decisions to make this winter. Do they go ahead with the capital expenditures that are so desperately needed, or do they bite the bullet for one more year and get by without the new tractor, the new carpet or the new pavement on the cart paths?
In most cases, the answer seems to be: “It depends.” If cash is so tight that operators wonder if they’re going to make payroll over the winter, they probably won’t be adding a new patio to the clubhouse and the superintendent will have to get by with the equipment he has. But that can be a precarious situation.
“It’s easy to rationalize and say, ‘Oh, we’ll wait one more year,’” Guerra notes. “But what if you have two bad years in a row? Then you can get behind the eight ball quickly.”
Daily-fee and resort operators, in many respects, are more vulnerable to this type of cash-crunch than private clubs. One year of missed projections and the capital improvements budget suddenly looks like the perfect piggybank to rob for the coming year. Private clubs with dues lines aren’t quite as susceptible, but that doesn’t make spending the money any easier.
“Our club used to do 70 to 75 weddings, but when I got here it had gotten down to about 35,” says Will Arabea, chief operating officer at Greate Bay Country Club in Atlantic City, New Jersey. “I told the board, ‘We’ve got to put in new carpet.’ They said, ‘Yeah, we looked into that, but it was going to be $50,000.’ But I told them, ‘We’ve got to spend it.’ They agreed and now we’re selling weddings ahead of pace.”
Arabea understands the impact of weather on capital budgeting better than most. Tropical Storm Sandy ravaged Atlantic City in 2012. But the derecho storm the city endured in June 2012, with straight-line sustained winds of more than 100 miles per hour, received far less attention than the rainy and cold spring of 2013.
“We had the two storms and then June broke records for rainfall,” Arabea notes. “Most of our members transition back from their winter homes in Florida around May or early June, but I talked to 30 members who kept calling and saying they were staying in Florida until the weather broke. Then, when it finally broke on July 4, it was 100 degrees. Everybody was doing 200 rounds a day, so they got pythium and dollar-spot. The disease was horrendous around here.”
It would have been easy for Arabea’s bosses at Greate Bay to rein in capital spending given the apocalyptic weather events the region had suffered. “[But] our feeling is, we got knocked around twice, so let’s spend some money now knowing that people are going to be coming back to the [New Jersey] Shore next year,” he says.
As such, club officials have earmarked another $75,000 to renovate a deck and recently invested in new equipment to enable the superintendent to repair bunkers. “You have to spend money to make money, and that’s going to be our approach here,” Arabea says. “We’re going to come out swinging.”
Taking an aggressive approach to capital expenditures isn’t without risk. The Farmer’s Almanac and Weather Trends International, both of which accurately predicted weather conditions for 2012 and 2013, assert that 2014 will be rough, with colder-than-normal temperatures and greater precipitation nationwide. Another wet, cold golf season could push some cash-strapped golf courses over the edge.
“There’s always a risk,” Arabea admits. “Even people who do have [capital] are looking at their bottom line and saying, ‘I’m not going to put any money into this until it (the economy) rebounds.’”
And therein lies the slippery slope. Putting off needed repairs or expenditures impacts your product, which affects the overall experience and customer satisfaction. “If we rebuild a couple of bunkers, fix that deck and revamp that wedding area, sure it’s a risk,” Arabea says. “But if we book four more weddings and get 20 new members because of it, it’s paid for itself two times over.”
If operators viewed capital improvement expenditures the same way they looked at mortgage payments or tax liabilities, the business would ultimately improve. Unfortunately, that mindset is difficult to ingrain, especially if they’re choosing between employee layoffs and, say, putting new fixtures in the locker rooms.
“The truth is that golf is just like the real estate industry when it comes to capital projects,” says Glenn Jacks, managing partner at The Golf Club at Revenna in Denver, Colorado. “It’s not like a manufacturing plant where you can trend one thing for one year and if you hit your numbers, you can trend something else for another year. You have to make capital improvements so the member believes he’s getting a good value.”
Jacks and his investors are spending $5 million to build a new clubhouse, one that he believes will separate his club from others in the area. “It’s certainly counter to the trends around the country, which, at least from what I’ve seen, have been to hold back,” he notes. “But we see that as an opportunity. We’re in the business of attracting and maintaining members, so when they see what we’re doing, it’s a differentiator.’”
Guerra has taken the same philosophy. When most operators in Atlanta were hanging on and hoping the rain stopped before Noah sailed by with an arc full of animals, Sequoia Golf bought three higher-end courses in the northern suburbs. This winter the company will spend upwards of $4 million on capital improvements at those new clubs.
“There are always more needs than there are dollars,” Guerra says. “That’s true of clubs that charge $100,000 initiation fees and those that charge $1,000. Allocation of capital is very important. You have to move the money into places that are going to have the most impact on member satisfaction, member recruitment and member retention. That’s what separates you from the competition at the end of the day.”
Ultimately, the decision of whether or not to invest in capital campaigns boils down to the disposition of the person who’s making the decision and the type of facility they’re overseeing. “In this business, you have to look at these capital projects in the long view,” Jacks says. “You can’t look at expensing them out of your cash flow or operations budget. It just doesn’t work. We simply don’t have those kinds of margins. Nobody does.”
Steve Eubanks is an Atlanta-based freelance writer and former golf course owner.